Aims Phosphorus (P) addition can help restore degraded Chinese grasslands. Soil P-availability affects the plant niche dynamics. However, the dynamics of niche characteristics are not yet understood, particularly for above- and belowground differences between species and plant-microbe interactions that generate these dynamics. Methods We conducted a long-term field P-fertilization experiment (0 to 12.5 g P m(-2) year(-1)) to explore the impacts of P addition on the niche dynamics of a competitive forb (Chenopodium aristatum, a non-mycorrhizal C-4 plant) and a dominant grass (Leymus chinensis, a mycorrhizal C-3 plant) in a temperate grassland in Inner Mongolia, northern China. Results Phosphorus addition greatly changed the niche and exacerbated aboveground competition between C. aristatum and L. chinensis. Competitive exclusion of L. chinensis occurred at all levels, except P-2.5. Photosynthesis and above- and belowground morphology of C. aristatum responded more to P-1 due to its high photosynthetic plasticity and nutrient resorption, which was associated with its competitive advantage. Although NO peaked at P-2.5, carbon assimilation and rhizosheath microbial biomass of L. chinensis were optimal. Alleviated NO at P-5 and P-12.5 was associated with segregation of root morphologies and rhizosheath microbial composition. However, surplus niches at P-5 and P-12.5 were occupied by invasive sub-shrubs, associating with the mismatched plant-microbe feedbacks of C. aristatum and L. chinensis. Conclusions Our findings suggest that rhizosheath microbes mediate trade-offs between a host plant's P-conservation and acquisition and highlight the importance of above- and belowground co-responses to community productivity and stability under P addition.